Eurozone heads for second recession

Euro zone countries will slip into a double dip recession this year as it contracts 0.3 percent, the European Commission forecast in a report on Thursday.

The wider 27-nation European Union, which generates a fifth of global output, will stagnate as it has yet to break its vicious cycle of debt, the Commission forecast.

The EC reversed an earlier forecast of 0.5 percent growth in 2012 reporting on Thursday that economic output in the 17 nations sharing the euro will contract 0.3 percent this year.

"The EU is set to experience stagnating GDP this year, and the euro area will undergo a mild recession," the Commission said in its interim forecast report.

"Negative feedback loops between weak sovereign debtors, fragile financial markets, and a slowing real economy do not yet appear to have been broken," the Commission said.

The euro zone was last in recession in 2009 when the economy contracted 4.3 percent during the deepest global slump since the 1930s.

A poisonous mix of high public debt, evaporating investor and business confidence and rising unemployment killed off the two-year recovery from the global financial crisis, economists say.

Inflation for the euro zone this year should come to nearer to what the European Central Bank judges about the right level for stable prices and a healthy economy, 2.1 percent, the EC said.

The growth forecast for the euro zone is slightly more optimistic than the International Monetary Fund's view that output in the currency area will dip 0.5 percent this year. But both agree the bloc will manage only a modest recovery in the final months of 2012.

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